Bombas SOCKS it to the Sharks
Bombas was a great business pitch to watch. Think about what they were able to do: differentiate a parity product! That’s no easy feat (no pun intended) when consumers typically substitute one athletic sock brand for another because they’re all virtually the same. “The mass market athletic sock hasn’t changed in decades” shared David Heath. Bombas turned the volume up on socks by increasing quality, decreasing cost and integrating social impact with its core mission.
What did you think of the deal Bombas got from Daymond? If you listened carefully, Bombas actually negotiated two deals:
- Daymond John as an equity investor will provide $200,000 for 17.5%
- Daymond John as the inventory financier: “I will finance the inventory.”
As an equity investment, their valuation was diluted from the original $4 million to $1.14 million valuation. Some of the concerns voiced by the sharks included inflated valuation, plateaued sales, using their money to hire a customer acquisition specialist and no clear plan for the future. Previously growth was attributed to word of mouth, but sales leveling off means they need to inject money to continue the momentum. Their saving grace was adjusting their valuation by 50% (and let’s be real: flattering Daymond).
The second deal (which is never fully explained by the Sharks) was Daymond offering to “finance the inventory.” This is called inventory financing. On $9 socks, their average profit margin is 54% (includes shipping). That means it costs approximately $4 to make each pair of socks. If Bombas wants an inventory of 100,000 socks to meet customer demand, Daymond will finance the production of those socks for $400,000. With inventory financing, your product is used as collateral to secure the financing. That essentially means, if Bombas goes belly up, Daymond can sell all the socks he financed to get his money back. This allows Bombas to use the equity investment (Daymond’s $200,000) to build the company’s future and not get swallowed up by sock production costs.
Let’s look at the lessons here for businesses not on Shark Tank (the rest of us):
- Take Lori’s advice to move it forward without hiring specialists. Research a digital word of mouth (D-WoM) strategy to continue momentum. Unlike what Robert stated, word of mouth can be a scalable strategy done digitally.
- Use Inventory Financing to keep your virtual shelves stocked. New company requests for financing are often ignored by larger lenders and banks because they don’t have 3 years worth of financials.
Spotlight on Veteran Appreciation
The Shark Tank is such a unique show. I can’t think of another show that has produced so many positive outcomes: kids inspired to develop product ideas, families working together to start a business, students taking school projects to the next level, entrepreneurs giving back and more. It’s re-awakened one of our countries greatest strengths: innovation.
The show extended its positive influence by honoring veterans on episode 608 during the first National Veterans Small Business Week in Washington D.C. The spotlight on veteran businesses gave prime-time support to the many soldiers transitioning from protecting our country to leading our country. Sharing advice with aspiring veteran entrepreneurs marks another milestone for the show. Kudos Shark Tank!
If you’re a veteran entrepreneur, make sure you check out the Citi Salutes “Realizing Your Dream” Competition. A dozen winners will take home a total of $130,000 in prizes.
Dan Casey, founder and CEO of purchaseorderfinancing.com, believes every business has a story to tell. He’s been listening and helping small businesses grow exponentially since 2002 using a creative combination of finance tools. He’s been featured in publications including Entrepreneur Magazine, Entrepreneur Online, Small Business Trends Online, The Washington Post, Crain’s Chicago Business & American Express Open Forum.
Visit www.purchaseorderfinancing.com and be sure to mention Shark Tank Blog to get a free subscription to Fast Company or Entrepreneur magazine.*
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